China to see record LNG imports as industries recover, expand

Liquified natural gas (LNG) storage tanks are seen at PetroChina's receiving terminal in Dalian, Liaoning province, China July 16, 2018. (REUTERS)
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Updated 26 September 2020

China to see record LNG imports as industries recover, expand

  • Despite the growth in demand, China is not expected to suffer supply shortages during the cold winter months when demand peaks

SINGAPORE: China’s imports of liquefied natural gas will likely grow 10 percent to new highs this year as companies scoop up cheap supplies to cover increasing industrial use and robust residential demand.
With its total natural gas use likely expanding at 4-6 percent this year, China is the only major bright spot on the world gas market, where demand is set to fall by about 4 percent as the global economy contracts due to coronavirus lockdowns.
LNG imports are set to hit a record 65-67 million tonnes this year, analysts and Chinese traders estimate, a tenth more than 2019's total and at a growth rate that could see China overtake Japan as the world’s top buyer by 2022.
Some analysts believe that China’s economy is now fairly much back to its pre-virus growth path.
“After taking a brief hit earlier this year due to the COVID-19 pandemic, China’s gas demand recovered faster than expected, driven mostly by the industrial sector that has recovered to 2019 levels since May,” said Alicia Wee, analyst at FGE.
Companies booked more super-chilled gas from Qatar, Russia and Australia, taking advantage of record-low prices earlier in the year as demand sagged elsewhere.

FASTFACT

Japan is the world's top buyer of LNG.

To accommodate higher LNG imports, top gas importer PetroChina reduced costlier pipeline supplies from central Asia, mainly Kazakhstan, using contract tolerances, said a Beijing-based PetroChina official.
“(Fourth-quarter)imports will remain robust . . . as LNG is both more competitive and flexible versus pipeline gas, despite a recent spot price spike,” said Lu Xiao, senior analyst at IHS Markit.
January-August imports of LNG rose 10.3 percent over the same year-ago period to 42.2 million tonnes, while piped gas fell 7.4 percent, Chinese customs data showed.
China sees natural gas as a bridge fuel on its long journey to reach carbon neutral by 2060, and since 2016 has switched millions of homes and thousands of factories to gas from coal. The gasification pace slowed along with the economy since 2019, but new pockets of industrial demand have emerged in manufacturing hubs such as south China’s Guangdong and east China’s Shandong provinces.
In Guangdong, China’s first region to import LNG, authorities are pushing ceramic and glass makers to burn gas instead of coal, which will likely generate up to 8 billion cubic metres of fresh gas demand this year, or 2.6 percent of the national total, according to a report carried this week by the Shanghai Oil and Gas Exchange.
Guangdong, the top gas power generator by province and second-largest gas consumer after Jiangsu, added 3 gigawatts of capacity in the first eight months to raise its total to 26 GW, more than a quarter of China's total, said IHS Markit’s Lu.
Residential demand also continues to grow, accounting for roughly 30 percent of total demand, said independent gas distributor ENN Energy Holdings and China Resources Gas Group, which each connected more than one million households to their pipeline network in the first half of 2020.
Despite the growth in demand, China is not expected to suffer supply shortages during the cold winter months when demand peaks.
Domestic gas production has also expanded. It is up nearly 9 percent in the first eight months versus a year ago as PetroChina and CNOOC Ltd stepped up domestic drilling to meet national supply obligations.
Companies have also filled underground storages with total effective working capacity of 14 billion cubic metres.
“Sufficient supplies and flexible demand make gas shortage a remote possibility,” said Huang Miaoru, senior manager at Wood Mackenzie.


Turkey holds rates in surprise that sends lira to new low

Updated 22 October 2020

Turkey holds rates in surprise that sends lira to new low

ISTANBUL: Turkey’s central bank bucked expectations for a big interest rate hike on Thursday and sent the lira plunging to a record low by holding its policy rate at 10.25% and saying it had already made progress in containing inflation.
The bank, which also surprised last month when it hiked rates, said it would continue with liquidity measures to tighten money supply. It raised the uppermost rate in its corridor, the late liquidity window (LLW), to 14.75% from 13.25%. A Reuters poll of 17 economists had expected the bank to raise its key one-week repo rate by 175 basis points to address Turkey’s weak currency and double-digit inflation. Forecasts ranged from hikes of 100 to 300 bps.
The decision to leave the rate unchanged sent the lira down more than 2% to near 8 versus the dollar and prompted economists to question the central bank’s commitment to lowering inflation and its independence from the government.
“The (bank) is now back to a more unpredictable and opaque monetary policy framework. It appears as a severe miscalculation,” Per Hammarlund, chief emerging markets strategist at Swedish bank SEB.
The key policy rate remains below annual consumer price inflation, which stood at 11.75% in September, leaving real rates negative for lira depositors.
Turkey’s central bankers had surprised markets with a 200 basis point rate hike in September, the first monetary tightening in two years as it sought to rein in inflation.
Its so-called backdoor measures to rein in credit have raised the average cost of funding to 12.52% from a low of 7.34% in July. The LLW adjustment gives the bank more scope to raise funding costs.
“A significant tightening in financial conditions has been achieved, following the monetary policy and liquidity management steps taken to contain ... risks to the inflation outlook,” the bank’s monetary policy committee (MPC) said.
It said liquidity measures will carry on “until the inflation outlook displays a significant improvement.”
The lira touched a record low of 7.9845 against the dollar.
It is down 25% this year in a selloff prompted by concerns about high inflation and the central bank’s badly depleted FX reserves, and geopolitical worries including the prospect of trickier US ties under a possible Joe Biden White House.
Last month’s hike in the policy rate reversed a nearly year-long easing cycle in which it fell rapidly from 24%, where it was set in the face of a 2018 currency crisis.
“Last month the central bank took an important step to restore credibility and today’s decision seems like a step back. All this positive impact has been reversed significantly,” said Piotr Matys, senior EM FX Strategist at Rabobank.
Turkey’s economy contracted 10% in the second quarter because of the coronavirus pandemic and measures to combat it. Tensions in the Eastern Mediterranean and in the Nagorno-Karabakh conflict are also clouding the outlook.